Pound-to-Dollar Rate: Comcast-Sky Bid Proving Supportive, Fed Looms Ahead
Image © kasto, Adobe Stock
- GBP/USD enjoying tentative recovery
- Comcast bid for Sky seen providing supportive M&A flows
- Immediate concern is outcome of tonight's Fed meeting
The Pound-to-Dollar exchange rate has defied bearish expectations and extends a rebound into the mid-week session, amidst an ongoing belief a Brexit deal is in the pipeline and supportive Merger & Acquisition news.
At the time of writing the exchange rate is quoted at 1.3166, having been as low as 1.2782 this month, but as high as 1.3297 ahead of the sharp 1.0%+ decline that followed Prime Minister Theresa May's comments that Brexit talks had reached a stalemate.
The rebound has come as a surprise to many analysts who expected the pair to continue its decline into this week; however it does serve to confirm that for now markets maintain a belief that a deal will indeed be struck by year-end.
"Price retraces beyond 61.8% of the September 21 1.3260 to 1.3041 drop," says Peter Stoneham, market analyst at Thomson Reuters. "Above 1.3186 and is now consolidating gains above the 100DMA."
One reason for the Pound's unexpected resilience is that it has been propped up by mergers and acquisitions (M&A) flows, caused by Comcast's winning bid for Sky.
Comcast is a U.S. telecoms company which is to take over U.K.-based Sky. The successful bid for Sky stands at $40BN, a good tranche of which must at some point be converted into Sterling.
Sky shares jumped by 8.8% to 17.28 on Tuesday, just below the level Comcast said it would buy up another tranche.
The large M&A flows are bound to be supporting demand for Sterling despite the increasing chances of a 'no-deal' Brexit.
"GBP/USD recovered some of Friday’s losses supported by news of potential underlying flow from the Comcast/Sky M&A," says a note from the commercial currency dealing desk at Barclays.
According to Robin Wilkin, a foreign exchange strategist with Lloyds Bank, a move above the 1.3200-1.3240 region would alleviate the bear bias and suggest a higher range developing, if not a re-test and push through 1.3300 again.
Fed Ahead
While Brexit remains a key consideration for Sterling at present, markets will be lining up the U.S. Federal Reserve as the immediate concern.
The Fed deliver their September policy meeting at 17:00 B.S.T. and are expected to announce an increase in interest rates to 2.25% (the upper bound of the new 2.00-2.25% range).
This move would be the eighth increase since it began raising rates in late 2015.
"Given the very high probability attached to today’s hike, markets are likely to be more interested in its signals for future policy moves in December and beyond. Markets will be looking to the post-meeting press statement, the FOMC forecast updates and Chairman Powell’s press conference for insights," says Wilkin.
The presser commences at 19:30 B.S.T.
Lloyds expect the press statement to reaffirm “further gradual increases” in interest rates.
"More interesting will be whether it drops or qualifies its description of the monetary policy stance as “accommodative” – it’s a risk, but we think a change in December is more likely," says Wilkin.
In terms of the dot plot, Lloyds expect it to reaffirm one further hike in December to 2.5% (upper bound), three more in 2019 to 3.25% and one in 2020 to 3.5%, which would take interest rates above the Fed’s estimate of the long-term ‘neutral’ level of 3%.
It is expected to extend its forecasting to 2021, so that area of the profile will be watched keenly.
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